26th Apr 2024 | Written by Pang Chun Enn
Key Considerations when evaluating A New Launch Project
In recent years, Singapore has witnessed a surge in new residential, commercial, and mixed-use project launches, each promising to cater to its diverse population's evolving needs. Prospective buyers and investors face many choices, each presenting unique investment opportunities and challenges. Now, it is important to understand the intricacies of the Singapore new launch and navigate the property investments with savvy insight and informed decision-making.
5 Key Considerations for Evaluating Singapore's New Property Launches
Now, let us dive into each consideration and understand why is it important when using it to evaluate a New Launch Project.
Developer Profit Margin
When evaluating new launches, it is wise to compare the launch price with the Government Land Sale (GLS) price tendered by the developer. This reveals the land's value and highlights any substantial markup for profit beyond the breakeven point.
A 15% to 20% Per Square Foot ($PSF) markup is a reasonable profit margin for the Developers. However, it also depends on your unit size as well. It is reasonably priced as long as it is within the range or slightly higher.
Below is an example of how you can calculate the reasonable markup of Profit Margins by Developers.
The break-even price can only be derived if the land is from a Government Land Sale. For en bloc projects or private land sales, the land price is calculated internally by the developers and not released publicly.
To find out the break-even price for any plot of GLS, you can do a simple Google search or check from Edgeprop, which will share details of how the break-even price is calculated.
I will share examples of the calculations for some new launches.
As seen in the table above, Botany At Dairy Farm and Lentor Mansion's average launch prices are out of the range of 15% to 20% profit markup by the Developer. However, do note that it is the average launch price. There will still be unit mixes which are within the reasonable launch price range for sale.
Potential HDB Upgraders Near-by
BTOs are the first ‘gold pot’ for Singaporean couples. On average, the profits from a sale of the HDB are approximately $200k to $300k. To understand more about BTO profits, read this article from Stackedhomes.
Besides the profit of their BTOs, HDB’s Minimum Occupation Period (MOP) also implies that they might have been accumulating savings for a potential upgrade to a condominium.
With the cash on hand, return on capital (for the BTO) and profits from the sale, it is likely couples can afford to upgrade to a condominium.
There are several reasons why couples with family will look to upgrade to a Condominium. Some of the reasons are
Investment Potential: Condominiums often appreciate more stably and faster than public housing.
Lifestyle Preferences: Some couples want the best for their children, providing swimming classes, a gym and a safe play area.
I will share a case study for Grand Dunman, The Continuum and Tembusu Grand.
Case Study
The above picture shows 4 BTO launches beside Grand Dunman, Dakota Breeze BTO, Dakota One BTO, Pine Vista BTO and Dakota Crest BTO launches consisting of over 2,137 units combined.
Upon the Minimum Occupation Period (MOP) of these 2 BTO launches, Grand Dunman, The Continuum and Tembusu Grand will be relatively new or possibly obtain the Temporary Occupation Permit.
It is common for HDB upgraders to look around the area’s new launches and possibly sell their BTO and upgrade to either of these 3 new launches.
Now, let’s take a look at the prices of the HDB transactions going around the area.
The image above shows the recent transactions for 3 blocks, 58, 60 and 62 Dakota Crescent, which is right below Dakota MRT Station. These HDBs are also 41 years old as well.
The resale prices for
3 Bedrooms: S$450k - S$500k
4 Bedrooms: S$700k - S$800k
5 Bedrooms: S$900k - $1 Mil and above
This is safe to say upon the new BTO launches reaching its MOP, it will most likely be sold around this pricing for even higher as the BTO leases are newer. This potential profit could prompt BTO owners in the vicinity to consider upgrading to condominiums in the future.
Profitable Transactions from Nearby Condo Projects
Near by condominium transactions around the new launch will help you understand the market sentiment and demand dynamics in the area. Positive transaction trends indicate a healthy market, while stagnant or declining transactions may signal challenges or oversupply issues.
Now, let us compare 2 recent new launches in Singapore. Hillhaven which is located in the Hillview area and Grand Dunman, which is located in Dakota.
Hillhaven Case Study: Kingsford Hillview Peak & The Hiller
Over 30+ unprofitable transactions since launch
Kingsford Hillview Peak is located near Hillhaven, beside The Hillier.
Based on 2023 to present profitable transactions show an average holding period of approximately 7 years and 4 months, with an average annual capital gain of merely $16,254, indicating subpar performance.
Average Capital Gain Per Year
$16,254/Y
Total Unprofitable Transactions
32
The Hillier is located near Hillhaven, in front of a newly launched condo, Midwood.
Based on 2023 to present profitable transactions show an average holding period of approximately 9 Years, with an average annual capital gain of merely $17,000, indicating subpar performance.
Average Capital Gain Per Year
$17,000/Y
Total Unprofitable Transactions
38
Grand Dunman Case Study: Dakota Residences & Waterbank at Dakota
Less than 15 unprofitable transactions since launch
Waterbank At Dakota is beside Dakota Residences, located near Grand Dunman (New Launch).
Based on 2023 to present profitable transactions show an average holding period of approximately 9 years and 10 months, with an average annual capital gain of $47,822, indicating a better performance than the Hillview area.
Average Capital Gain Per Year
$47,823/Y
Total Unprofitable Transactions
12
Dakota Residence is located across Grand Dunman (New Launch).
Based on 2023 to present profitable transactions show an average holding period of approximately 12 Years and 1 month, with an average annual capital gain of merely $70,990, indicating a great history of performance.
Average Capital Gain Per Year
$70,990/Y
Total Unprofitable Transactions
5
Drawing from the case studies presented earlier, it becomes evident that the Dakota leasehold projects entail lower risk and have proven significantly more profitable over time.
Examining nearby transacted condo projects offers vital clues to gauge the area's performance and potential profitability.
Thus, whether a new project proves more or less likely to be profitable hinges greatly on the patterns observed from nearby projects transactions.
Consistent vs. Varied Floor Plans in Condo Stacks
Despite complaints about the mundane squarish layout in new launches and BTOs in Singapore, a strong preference for consistency in floor plans has emerged among Singaporeans.
Notably, uniform squarish floor plans across the entire stack offer several distinct advantages, ranging from enhanced space utilization to simplified maintenance and resale processes.
This preference has been proved by numerous architect-designed projects and transactions across Singapore, which often incur losses compared to their consistent counterparts.
Sky Habitat and Reflections at Keppel Bay stand as painful examples within Singapore, illustrating the potential drawbacks of adopting varied floor plans over consistent ones. Despite their architectural splendour and prime locations, these projects have faced challenges in maximizing profitability due to their diverse or unique floor plans for units of similar sizes.
Sky Habitat Case Studies: Sky Habitat vs Sky Vue
15% in Profit Difference and more unprofitable transactions
Sky Habitat
Average PSF Change since
Q1 2015 to Q2 2024
30.92%
Total unprofitable transactions
27
Sky Vue
Average PSF Change since
Q1 2015 to Q2 2024
45.82%
Total unprofitable transactions
1
Reflections At Keppel Bay Case Studies: Unprofitable Haven
-15% in Average PSF since 10 years ago
Reflections at
Keppel Bay
Average PSF Change since
Q1 2015 to Q2 2024
-15.35%
Total unprofitable transactions
within 5 years
177
As seen in these two compelling case studies, the allure of architecturally innovative designs at the expense of consistency may prove to be a double-edged sword. While such projects may initially captivate with their uniqueness, the subsequent challenges in resale value and market performance underscore the enduring appeal of Singapore's traditional squarish, consistent floor plan layouts.
Ultimately, these studies serve as a reminder of the importance of aligning design choices with practical market realities to ensure long-term success and value retention in Singapore’s real estate market.
Healthy Volume of Units
Large-scale condominiums tend to offer more advantages than boutique projects. With more units in the project, there will be a higher volume of transactions which indicates a healthy market and an increased likelihoods of successful profitable sales.
Additionally, larger developments tend to entail lower Management Corporation Strata Title (MCST) fees, easing its quarterly payments to the project management.
Although some developers may initially offer lower prices for boutique projects, do not be fooled. You must recognise the potential challenges in finding suitable buyers when executing your exit plan.
Due to the lack of transactions in other apartments that gained the Temporary Occupation Permit (T.O.P) in 2022, I will only be able to share Jui Residences which has 117 units versus Park Colonial, a 800+ units project development.
Jui Residences vs Park Colonial: Both projects TOP-ed in 2022
Over $80k difference from sale profits
As all the transacted units in Jui Residences are 1 to 2 Bedders, I will be comparing both project’s average profit from the resale of 1 to 2 Bedders.
Jui Residences
No. of Transactions since launch
8
Average Profit
$110,244
VS
Park Colonia
No. of Transactions from 2023 - Present
30+
Average Profit
$191,003
As seen in the case study above, Jui Residences' limited transactions and lower profits contrast with Park Colonial's robust transaction volume and higher profits, highlighting the advantages of larger-scale developments.
This comparison reaffirms that investing in projects with a substantial volume of units offers greater potential for profitability and easier unit liquidation in the market.
In conclusion…
By scrutinizing these 5 key considerations, homeowners or investors can position themselves for long-term profitability and easier exits. While this article has primarily focused on data and numerical analysis, it's important to acknowledge that other factors such as floor plans, facilities, and accessibility also play a role in shaping the appeal of a new launch.
While these aspects may be addressed in future articles, prioritizing an understanding of data, exit strategies, and profit potential remains paramount in Singapore’s Real Estate market.
Wrapping up…
If you're considering investing in a new launch and need expert guidance, don't hesitate to get in touch. I'm here to assist you every step of the way. Let's make your investment journey a successful one together.
Pang Chun Enn
R065301I
Kingsford @ Hillview Peak Transaction (Profitable)
Information from Soreal; Limited to 30 transactions
Kingsford @ Hillview Peak Transaction (Unprofitable)
Information from Soreal; Limited to 30 transactions
The Hillier (Profitable)
Information from Soreal; Limited to 30 transactions
The Hillier (Unprofitable)
Information from Soreal; Limited to 30 transactions
Waterbank At Dakota(Profitable)
Information from Soreal; Limited to 30 transactions
Waterbank At Dakota(Unprofitable)
Information from Soreal
Dakota Residences (Profitable)
Information from Soreal; Limited to 30 transactions
Dakota Residences (Unprofitable)
Information from Soreal
Sky Habitat vs Sky Vue Chart
Jui Residences
Information from Soreal
Park Colonial
Information from Soreal; Limited to 30 Transactions
Disclaimer:
The information provided in this blog is opinions and it is for informational purposes only. It should not be construed as professional advice. The views and opinions expressed are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All content provided is intended to encourage discussion and exploration of topics related to the rental market. Readers are encouraged to conduct their own research and consult with relevant professionals before making any decisions. The author takes no responsibility for any actions taken based on the information provided in this blog.